Hormuz Hysteria

There has been much unnecessary concern about Iran closing the Strait of Hormuz. Some 20% of world oil traverses this narrow waterway between Iran and Oman, at the eastern end of the Persian Gulf. The situation has been escalating rapidly -- as the US and Europe have been trying to stop Iran from building atomic weapons. Diplomacy having failed, the Western powers are now applying ever-tightening economic sanctions. In response, Iran has threatened to close Hormuz -- even if this would involve cutting their own oil exports (although a selective blockage is possible).Joint-Chiefs-of-Staff Chairman General Martin Dempsey readily concedes that Iran has the capability to close Hormuz -- at least for days or even weeks. But a blockade would be considered an "act of war," with the US Navy prepared to do whatever it takes to keep the waterway open. Iran has warned they would use force to counter any such attempt. The aircraft carrier USS Abraham Lincoln has just entered the Gulf; but there has been no Iranian response -- so far.

However, this game of "chicken" can quickly escalate. On the one hand, the US can easily destroy Iranian oil platforms and loading facilities, and even attack refineries and other infrastructure. But on the other hand, a massive attack on an aircraft carrier can inflict substantial damage; it is essentially impossible to defend against a massive attack, involving Iranian missiles, torpedo boats, midget submarines, and kamikaze airplanes. One cannot predict what will happen since face-saving considerations by Iran may well outweigh rationality. About the best one can do is to discuss some possible scenarios: the economic consequences of a major but temporary interruption in world oil supply; likely military scenarios; and speculative political consequences.

Oil Market: Assume a "worst- case" situation in which the Strait of Hormuz is closed with underwater mines for about 6 weeks. I know from my own Navy experience that mines can be built which are extremely difficult to sweep -- and that many other tricks can be incorporated to produce a real threat to non-Iranian shipping. Informed sources estimate that the world price of oil could jump from its present $100 to $200 a barrel within a few days. This has been the essential threat played up in newspapers and used with some success by Iran to discourage toughened sanctions. How would such a scenario play out?

First of all, let's remember that a barrel contains 42 gallons. An increase in price by $100 translates to $2.50/gal; gasoline in the US would then sell for about $6/gal. (In Europe where gasoline is now around $8, the percentage increase would be much smaller.) About 1% of US electricity production comes from oil, so prices would be hardly affected. (In Europe also, most electric power comes from coal and nuclear.) The real impact of the higher price would be on China, Japan, India, Korea, and the less developed countries of the world. (Ironically, China is also one of the biggest investors in Iranian oil production.)

But within a few days, the situation would improve and prices would moderate. Saudi Arabia would pump oil through its trans-Arabian pipeline onto Yanbu loading platforms in the Red Sea. Iraq has pipelines to the Mediterranean, while Iranian options are more limited. Oil from the West's Strategic Petroleum Reserves could moderate any price jumps for days or even weeks. Finally, increased production would soon become available from marginal wells and might even produce a rush to invest in new exploration.

In other words, a temporary closure of Hormuz and a higher world price would hurt industry and consumers in East Asia but not so much in the West. The loss of oil revenues would damage Iran's economy and likely cause internal problems. Iran would also lose badly needed international political support. Once this information sinks in to Iranian leaders, the hysteria about a Hormuz blockade would die down and Iran's threats would lose effectiveness.

Military Scenario and Speculative Political Implications: Closure of the Strait entails risks to both sides. There is little doubt that the US would respond forcefully. We have the 1988 precedent when an Iranian mine damaged the USS Samuel B. Roberts, which led to severe retaliation. In the present case, one could imagine wholesale destruction of Iranian infrastructure and even nuclear installations. All of this might persuade the Ayatollahs to back off.

But who can tell? There are just too many imponderables: Will the Iranian public, suffering inflation and now increasing economic hardships, rebel against its theocratic authoritarian government? Will the 12th Imam come out of hiding? Will Iran try to sink a US Navy carrier -- not impossible -- with a swarm attack? Will Obama pursue retaliation, hoping to gain a victory on the cheap to improve his chances for re-election? Once on a war footing, would the US destroy Iran's capabilities to develop and launch nuclear-tipped ballistic missiles?

Irony of ironies. Barack Hussein Obama might finally earn his Nobel Peace Prize and go down into the history books as the leader who saved Western civilization from the onslaught of Islam: Charles Martel Obama. Or perhaps even as the Messiah, the savior of Israel, Moshe Ariel Obama.

The writer, a physicist and professor emeritus at the University of Virginia, has a Naval background in mine warfare. He authored a monograph on the World Price of Oil and consulted on oil economics during the 'Tanker War' and Iran-Iraq conflict of the 1980s.

There has been much unnecessary concern about Iran closing the Strait of Hormuz. Some 20% of world oil traverses this narrow waterway between Iran and Oman, at the eastern end of the Persian Gulf. The situation has been escalating rapidly -- as the US and Europe have been trying to stop Iran from building atomic weapons. Diplomacy having failed, the Western powers are now applying ever-tightening economic sanctions. In response, Iran has threatened to close Hormuz -- even if this would involve cutting their own oil exports (although a selective blockage is possible).

Joint-Chiefs-of-Staff Chairman General Martin Dempsey readily concedes that Iran has the capability to close Hormuz -- at least for days or even weeks. But a blockade would be considered an "act of war," with the US Navy prepared to do whatever it takes to keep the waterway open. Iran has warned they would use force to counter any such attempt. The aircraft carrier USS Abraham Lincoln has just entered the Gulf; but there has been no Iranian response -- so far.

However, this game of "chicken" can quickly escalate. On the one hand, the US can easily destroy Iranian oil platforms and loading facilities, and even attack refineries and other infrastructure. But on the other hand, a massive attack on an aircraft carrier can inflict substantial damage; it is essentially impossible to defend against a massive attack, involving Iranian missiles, torpedo boats, midget submarines, and kamikaze airplanes. One cannot predict what will happen since face-saving considerations by Iran may well outweigh rationality. About the best one can do is to discuss some possible scenarios: the economic consequences of a major but temporary interruption in world oil supply; likely military scenarios; and speculative political consequences.

Oil Market: Assume a "worst- case" situation in which the Strait of Hormuz is closed with underwater mines for about 6 weeks. I know from my own Navy experience that mines can be built which are extremely difficult to sweep -- and that many other tricks can be incorporated to produce a real threat to non-Iranian shipping. Informed sources estimate that the world price of oil could jump from its present $100 to $200 a barrel within a few days. This has been the essential threat played up in newspapers and used with some success by Iran to discourage toughened sanctions. How would such a scenario play out?

First of all, let's remember that a barrel contains 42 gallons. An increase in price by $100 translates to $2.50/gal; gasoline in the US would then sell for about $6/gal. (In Europe where gasoline is now around $8, the percentage increase would be much smaller.) About 1% of US electricity production comes from oil, so prices would be hardly affected. (In Europe also, most electric power comes from coal and nuclear.) The real impact of the higher price would be on China, Japan, India, Korea, and the less developed countries of the world. (Ironically, China is also one of the biggest investors in Iranian oil production.)

But within a few days, the situation would improve and prices would moderate. Saudi Arabia would pump oil through its trans-Arabian pipeline onto Yanbu loading platforms in the Red Sea. Iraq has pipelines to the Mediterranean, while Iranian options are more limited. Oil from the West's Strategic Petroleum Reserves could moderate any price jumps for days or even weeks. Finally, increased production would soon become available from marginal wells and might even produce a rush to invest in new exploration.

In other words, a temporary closure of Hormuz and a higher world price would hurt industry and consumers in East Asia but not so much in the West. The loss of oil revenues would damage Iran's economy and likely cause internal problems. Iran would also lose badly needed international political support. Once this information sinks in to Iranian leaders, the hysteria about a Hormuz blockade would die down and Iran's threats would lose effectiveness.

Military Scenario and Speculative Political Implications: Closure of the Strait entails risks to both sides. There is little doubt that the US would respond forcefully. We have the 1988 precedent when an Iranian mine damaged the USS Samuel B. Roberts, which led to severe retaliation. In the present case, one could imagine wholesale destruction of Iranian infrastructure and even nuclear installations. All of this might persuade the Ayatollahs to back off.

But who can tell? There are just too many imponderables: Will the Iranian public, suffering inflation and now increasing economic hardships, rebel against its theocratic authoritarian government? Will the 12th Imam come out of hiding? Will Iran try to sink a US Navy carrier -- not impossible -- with a swarm attack? Will Obama pursue retaliation, hoping to gain a victory on the cheap to improve his chances for re-election? Once on a war footing, would the US destroy Iran's capabilities to develop and launch nuclear-tipped ballistic missiles?

Irony of ironies. Barack Hussein Obama might finally earn his Nobel Peace Prize and go down into the history books as the leader who saved Western civilization from the onslaught of Islam: Charles Martel Obama. Or perhaps even as the Messiah, the savior of Israel, Moshe Ariel Obama.

The writer, a physicist and professor emeritus at the University of Virginia, has a Naval background in mine warfare. He authored a monograph on the World Price of Oil and consulted on oil economics during the 'Tanker War' and Iran-Iraq conflict of the 1980s.